CALIFORNIA ATTORNEY'S FEES

Fee Clause Interpretation, Reasonableness Of Fees: Appellant’s Failure To Discuss Fee Clause Entitlement Under Note Fees Clause And Failure To Provide Reporter’s Transcript (RT) Of Fee Hearing Doomed Merits Of Her Appeal

Absence Of RT Can Be Fatal Indeed, Meaning Inadequate Record On Appeal.

            Appellants need to address legal fee entitlement bases and provide a reporter’s transcript of a fee hearing when challenges are made to either the merits or the amount of fees awarded. We have posted many times about how appellate courts will rebuff fee award challenges where no reporter’s transcript is provided, something that the Second District, Division 5 is especially prone to do unless only legal issues are involved in the fee challenge. Vyas v. Berman, Case No. A149220 (1^st Dist., Div. 2 Sept. 27, 2018) (unpublished) follows that trend.

            Appellant argued that the post-judgment award of $46,820 in fees was in error. However, with respect to fee entitlement, she could not demonstrate any infirmity given the failure to discuss a promissory note fees provision which facially did allow for fee recovery to the prevailing party (appellant’s opponent below). On the claim that the amount of fees was excessive and unreasonable, appellant’s failure to provide a reporter’s transcript doomed the appeal based on the failure to present an adequate record for purposes of assessing this challenge. (Vo v. Las Virgenes Municipal Water Dist., 79 Cal.App.4^th 440, 447 (2000).)

Fee Clause Interpretation: $178,255 Fee Award Against Guarantor Reversed As A Matter Of Law

Reason Was That Guarantor Guaranteed Orally, Not Assuming The Fee Clause Liability Under The Guaranteed Note With A Written Fees Clause.

            In Khodagulyan v. Aminpour, Case No. B270330 (2d Dist., Div. 3 Sept. 6, 2018) (unpublished), a cross-complainant was found to be a prevailing party because he had incurred attorney’s fees to collect on a note as against cross-defendants found to have orally guaranteed the note. The lower court awarded cross-complainant $178,255 in fees, jointly and severally against the cross-defendants, based on the fees provision in the note.

            All of that fee recovery went POOF! on appeal.

            The reason for this reversal was that appealing parties only orally guaranteed the note payment amount, with nothing indicating that they agreed to pay the amount due under the note according to the terms of the note. Simply agreeing to orally guarantee payment did not mean the guarantors agreed also to pay other obligations under the note, including responsibility under the fees clause.

Deed Of Trust, Fee Clause Interpretation: Deed Of Trust Fees Clause Did Not Justify Recovery To Successful Litigant Really Suing For Real Estate Option To Purchase Agreement Lacking A Fees Clause

Deed Of Trust Fees Clause Was Not Broad Enough To Encompass Real Estate Option Dispute.

            We have somewhat, on a syllogistic basis, indicated how one can achieve success on a fee petition in past posts—and we may give more clues to follow in future posts.

However, the first element is FEE ENTITLEMENT. You need a statutory or contractual basis for fee recovery. On a contractual basis, this means a laser focus on the terms of the fees clause to determine if it captures the disputes on which a judgment or resolution was reached. The next case shows how a successful result under one agreement, without a fees clause, and under another agreement, with a fees clause, may not entitle one to fees depending on what agreement really governed the dispute. If the dispute was governed under an agreement without a fees clause, you are out of luck!

In New Life Oasis Church v. Central Korean Evangelical Church, Case No. B284456 (2d Dist., Div. 4 Aug. 20, 2018) (unpublished), there was a longstanding dispute between parties as to the ownership of a Koreatown church property in Los Angeles. Plaintiff ultimately won a judgment to enforce a lease option to buy defendants’ church property, although nothing in the lease option document had an attorney’s fees provision. However, plaintiff was given a trust deed to secure an option security deposit on the Koreatown property, which did not contain an attorney’s provision indicating that the trust deed trustor would “ . . . appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary [Plaintiff] or Trustee; and to pay all costs and expenses, including costs of evidence of title and attorney’s fees in a reasonable sum, in any action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed.” The trial judge found that this provision allowed the plaintiff to recover attorney’s fees of $285,025 against the defendants as the prevailing party.

The fee award was reversed as a matter of law by the appellate court upon review.

Nothing demonstrated that the two agreements were linked or incorporated by reference so as to justify a fee award based on a deed of trust fees clause which was divorced from plaintiff’s option agreement win. In fact, the reviewing court did place emphasis on punctuation marks in the written clause which influenced its decision.   (Dow v. Lassen Irrigation Co., 216 Cal.App.4^th 766, 783 (2013).) All of the punctuation and context of the trust deed provision showed it applied to narrow trust deed enforcement, not broader lease option concerns. Given the narrower scope of the DOT clause, fee recovery was not proper.

Fee Clause Interpretation: 4/3 DCA Reverses $9,000 Fee Recovery Against Estate’s Personal Representative/General Partner Who Was Not A Party To The Agreement With Fees Clause

Fee Clause Was Also Broad In Scope, But Nonsignatory Individuals Were Not Party To The Underlying Agreement.

            In Mayhew Plaza Woodland Hills II, LLC v. Kelsey, Case No. G054435 (4^th Dist., Div. 3 Aug. 6, 2018) (unpublished), plaintiff dismissed an individual defendant in his capacity as representative of an estate in an action alleging only tort claims, with the individual defendant later awarded $9,000 in attorney’s fees under a broad fees clause in a purchase agreement. The fees clause broadly stated: “In any litigation, arbitration, or other legal proceeding which may arise between any of the parties hereto, including Agent, the prevailing party shall be entitled to recover its costs, including costs of arbitration, and reasonable attorneys’ fees in addition to any other relief to which such party may be entitled.”

            The 4/3 DCA, in an opinion authored by Justice Bedsworth, reversed. The problem was that “Agent” was specifically defined to be a broker in the transaction. Another flaw was that none of the individuals named in the action were “parties,” as distinct from the signatories (such as a limited partnership). The general partner was not liable for fees simply because he signed a contract on behalf of a limited partnership. “Nothing in this agreement indicates that the parties intended an already wide-ranging fee provision would apply to anyone who happened to get swept up in litigation between the contracting parties.” (Slip Op., p. 9.) Similarly absent was any showing that the agreement was intended to benefit the general partner individual defendant. (Whiteside v. Tenet Healthcare Corp., 101 Cal.App.4^th 693, 709 (2002).)

Fee Clause Interpretation: Tenant/Assignee Under Lease Properly Awarded Partial Litigation Fees For Winning Contractual And Related Fraud Cross-Claims, But Properly Denied Fees Expended In Prevailing On Common Law Ejectment Cross-Claim

Lease Agreement At Issue Because Lease Term Had Expired; And, In Any Event, Ejectment Was Tort Claim Not Encompassed Within Narrower Fees Clause.

            Compton Commercial Development Renaissance Plaza v. Taco Bell Corp., Case No. B283393 (2d Dist., Div. 4 Aug. 1, 2018) (unpublished) was a case where landlord sued former tenant/assignee Taco Bell for breach of contract, fraud, and common law ejectment under a cross-complaint after Taco Bell assigned the lease to another (allegedly not doing so properly). The lease agreement had a narrow attorney’s fees clause, as relevant to the dispute at issue, applying to suits “to enforce” lease provisions or “for a declaration of rights hereunder.” Taco Bell obtained a demurrer on contract and fraud claims, for which fees were awarded to the tune of $47,700. However, the trial judge refused to award other fees incurred in obtaining summary judgment of the ejectment cross-claim. Taco Bell appealed the refusal to award fees on the ejectment cross-claim work.

            The landlord had the better side of this argument.

            The fees clause in the lease had narrow language, unlike more encompassing “arising out of” or “with respect to subject matter” language, which did not apply to tort claims. The ejectment claim did not qualify for fee recovery for two reasons: (1) the lease agreement was not in dispute because Taco Bell was not in possession (the lease term had undisputedly expired already) and it disclaimed any residual interest under the lease; and (2) the ejectment cross-claim sounded in tort, such that it was not within the ambit of the fees clause.

Fee Clause Interpretation: Joint Tenant Liable For $237,080 In Attorney’s Fees Where Another Joint Tenant Obtained $210,750 In Compensatory Dmgs. To Lease Premises Where Both Parties Signed Lease, And Contribution Rights Were Involved to Landlord

Narrow Lease Clause Applying Broadly To “Any Party” Encompassed Fee Exposure With Respect To Actions Between Joint Tenants.

           Sometimes small words make a difference in the interpretation of the scope of an attorney’s fees provision. In this instance, the words “any party” opened the door to fee exposure in a controversy between joint tenants with respect to a fire causing damages to the leased premises and damaging both of the tenants’ businesses operated from jointly leased premises.

            Shehadeh v. Altoh, Case No. C082993 (3d Dist. July 27, 2018) (unpublished) involved joint tenant lease with a broadly-worded fees clause which said “[i]f any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party . . . in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.” (This is the fees clause in the AIR Commercial Real Estate Association Standard Industrial/Commercial Single-Tenant Lease at the time, which was in 2008.) Of importance, two tenants—plaintiff and defendant in the litigation to follow—signed as tenants in a lease with a landlord, eventually dividing the space so that plaintiff operated an auto sales business on one part of the property while defendant operated an auto repair business on another part. A fire occurred, disrupting the sales business and destroying the repair business. Plaintiff joint tenant (sale business owner) sued defendant joint tenant (repair business owner) for negligence and premises liability, claiming the fire originated from the auto repair business. The trial court, after a bench trial, agreed and awarded plaintiff damages in the amount of $210,750. Prevailing plaintiff filed a motion for attorney’s fees based on the lease provision, requesting $253,780 in fees. The trial court awarded plaintiff $237,080 in fees, prompting an appeal by defendant claiming that the fees provision does not apply to disputes between joint tenants.

            The Third District affirmed the fee award. A big reason for the affirmance was the “any Party” language in the lease provision among joint tenants, especially given that the lease specifically delineated that a “Party” meant an individual Party in definitional language and given that the authority/multiple parties/execution provision supported a singular party as being a “Party” within the meaning of the lease. Joint tenants were obviously jointly and severally liable to the landlord, such that there were contribution rights for damages and joint tenants have duties amongst themselves under the lease, so the dispute was encompassed (not to mention the broad tort language in the fees clause). Although there was a separate sublease between the joint tenants with a narrower fees clause, nothing in the sublease indicated it displaced the lease joint tenancy provisions.

Fee Clause Interpretation: Plaintiff Recovering $1.3M Jury Verdict On Premises Liability Claim Against State Of Cal. Not Entitled To $1.2M In Requested Fees Based On Lease Clause As Claim Did Not Arise “Out Of The Execution Of The [Rental] Agreement"

Plaintiff Never Mentioned Lease Or Fee Recovery In The Premises Liability Suit Until After The Jury Win, With Appellate Court Agreeing With Trial Court’s Construction Of The Fees Clause.

            We get the feeling that the 1/2 DCA in Wright v. State of California, Case No. A150165 (1^st Dist., Div. 2 July 27, 2018) (unpublished) believed plaintiff somewhat was “pulling a fast one” by not even mentioning that the dispute over which he won a $1.3 million jury verdict really involved a lease with an attorney’s fees clause. As a result, it completely found the trial judge was “spot on” in concluding that the fees clause did not apply and denying an almost $1.2 million fee post-verdict fee request.

            The problem here was that plaintiff was suing for a premises liability stair trip outside of the premises he was renting from the State of California. He did not mention the lease in the complaint or prayer for recovery of fees. The trial judge decided that the fees clause was narrow, applying only to a dispute which had to “arise out of the execution of this agreement,” and characterizing the suit for one just like any public member would bring on a premises liability basis rather than a tenant suing under the lease. (Made all the more so because the lease defined the “premises” circumspectly as the house plaintiff was renting from the State.) Plaintiff tried to rely on a “common area” theory which was successful in Hemphill v. Wright Family, LLC, 234 Cal.App.4^th 911 (2015), but the lower court correctly found it distinguishable because the jury in the case at issue did not necessarily decide on that issue because the evidence was controverted. The indemnification clause in the lease did not confer fee entitlement because plaintiff’s motion did not rely on this clause and the indemnification clause did not speak to fees or expert costs at all.

            Here is the bottom line from the appellate panel in affirming the denial of fees: “Wright should not be permitted to bring a statutory tort claim, omit any mention of attorney fees or otherwise bring into play the lease agreement, and thus not risk being saddled with the State’s attorney fees if he lost at trial; and then, having won, subsequently contend that his claim was based on the lease.” (Slip Op., p. 15.)

Fee Clause Interpretation, Section 1717, Section 998: Overall Prevailing Party Not Entitled To Atty’s Fees On Contractual Claim Dismissed During Closing Argument, On Noncontractual Claims Under Narrow Fees Clause, Nor § 998 As Gen. Litigation Expenses

Result Was Affirmance Of $38,000 Fees Award On One Of Three Cases, But Affirming The Denial Of The Remaining $165,000 Total Request Based On Topical Analysis Above.

            Contreras v. Silla America, Inc., Case No. B283118 (2d Dist., Div. 3 July 17, 2018) (unpublished) involved a situation where a trial judge decided that an overall prevailing party was entitled to apportioned attorney’s fees of $38,000 in one of three cases, although denying the total fee request on all three cases coming to a total of about $165,000. Prevailing party—as appellant – wanted more, appealing, but he did not gain his wish.

            With respect to one case where he was a defendant, the appellant could not gain fees because the plaintiff dismissed the case during closing argument. Appellant was not happy, but the dismissal was proper because it was done before submission of the matter for decision so as to preclude fee recovery. In this respect, Division 3 agreed with the analysis of the Second District, Division 4 in Shapira v. Lifetech Resources, LLC, 22 Cal.App.5^th 429, 437 (2018) on the issue [reviewed in our April 20, 2018 post].

            However, not to give up on the Santisas point in the case where fees were denied, appellant argued that the causes of action were noncontractual in nature so as to fall outside of the contractual dismissal ban. No, that did not work. The fees provision only focused on collection actions following the buyer’s failure to pay for purchased goods, not containing any broad language to support an award of fees as it related to noncontractual claims.

            Finally, that brought everyone to the CCP § 998 argument that the rejected settlement offer allowed the offeror, like appellant, to recovery litigation expenses such as attorney’s fees. The Court of Appeal, eloquently, answered this way:   nice try. Section 998 does not provide for recovery of attorney’s fees as costs, unlike potential recovery of expert witness fees. “We are unaware of any case holding that Code of Civil Procedure section 998 authorizes a discretionary award of attorney’s fees as costs in the absence of some other statutory or contractual right to such fees.” (Slip Op., p. 14.)

Deeds Of Trust/Fee Clause Interpretation: Deed Of Trust Fees Clause Was Broadly Worded So As To Entitle Lender To Attorney’s Fees Award Against Borrower

$45,263.33 Was The Award After A Dismissal Based On Plaintiff Not Appearing At Trial.

            In Kleidman v. RFF Family Partnership, L.P., Case No. B268541 (2d Dist., Div. 4 July 10, 2018) (unpublished), plaintiff failed to appear at a scheduled trial such that his case against a lender was dismissed, a determination affirmed on appeal. The trial judge subsequently awarded lender $45,263.33 in attorney’s fees based on a fees clause in the deed of trust. Plaintiff challenged that determination, but the appellate court rejected it. In this case, the fees clause was broad, including “any action or actions … which may be brought … for the enforcement of any covenant or right in the Deed of Trust or any other Loan Document ….” Given that Civil Code section 1717 made it reciprocal in nature, the unilaterally-worded clause in favor of lender did not render it infirm.

            BLOG OBSERVATION—The result here contrasts with the opposite conclusion reached in some cases, where deed of trust fees clause confined the remedy to adding the fees to the loan balance and then requiring a foreclosure. You can find cases supporting fee denials on this basis in our home page category “Deeds of Trust.”

Fee Clause Interpretation: Telephone Leasing Defendant Not Entitled To Fees Against Plaintiff Successor Owners In Declaratory Relief Action Where Fee Clause Only Applied In Lease Between Defendant And Phone Provider

However, Defense Attorney’s Recordation Of Judgment Abstract Based On Including Fees As Costs Before Fee Motion Was Heard Troubled The Court Of Appeal, Which Ordered The Lien Removed.

            In Labertew v. Whiteley, Case No. C077751 (3d Dist. July 10, 2018) (unpublished), plaintiffs, successors to the original owner on land where there was telephone equipment leased to a phone provider, sued defendant original owner for declaratory relief, claiming that they were entitled to the lease cash flow under the phone equipment lease entered into by defendant and the phone provider. The lease had a fees clause between defendant and the phone provider. Defendant prevailed in plaintiff’s declaratory relief action. Defendant then sought fees from plaintiffs and her attorney filed an amended abstract of judgment against plaintiffs’ property for the amount of a costs judgment (but which included the amount of requested attorney’s fees as costs before the fee matter was adjudicated). The trial judge refused to award fees and ordered the abstract to be removed.

            The Third District affirmed. It decided the lease fees clause only related to defendant and the phone provider, not extending to any dispute for declaratory relief between defendant and a successor in interest to the property defendant formerly owned. It was even more troubled by the recordation of a judgment abstract for a yet-to-be adjudicated fee motion as part of the abstract, agreeing it was properly lifted and referring the matter to the State Bar for defense attorney’s “troubling” conduct.

Deeds Of Trust/Fee Clause Interpretation: Broadly Worded Trust Deed Fees Clause Allowed For Fee Recovery By Lienholder Under Second Loan Based On Both Contract And Tort Theories

“To Protect Lien” Under Deed Of Trust Fees Clause Was Viewed As Broad In Ambit.

            In Arefi v. JP Morgan Chase Bank, Case No. B263947 (2d Dist., Div. 7 July 2, 2018) (unpublished), a borrower brought various causes of action to set aside/cancel a trustee’s sale, to quiet title, and to obtain recovery under various statutory claims arising from an assigned lienholder’s nonjudicial foreclosure of a second loan. All of the claims were resolved against borrower, with the trial court subsequently granting attorney’s fees to lienholder under a broadly worded deed of trust fees clause allowing lender to recover fees “to protect its lien” under the second loan deed of trust.

            Borrower’s appeal on the merits and on the fees award did not succeed.

            Because the borrower’s causes of action were ones challenging the lien, the lienholder did vindicate a win to “protect its lien” under the deed of trust fees clause. Also, the broad fees clause covered both contract and tort claims such that it did not matter if some were other than “on the contract” under Civil Code section 1717.

Fee Clause Interpretation: Fee Recovery To Litigant Prevailing On Cross-Complaint With Mixed Tort/Contract Claims Properly Denied Because Fees Clause Only Related To More Narrow “Account” Issues

Litigant Failed To Show Fee Entitlement.

            Assuming that a fee motion is timely filed, the next big obstacle for a fee claimant is demonstrating – drum roll time! – fee entitlement. That obstacle was not cleared by appellant in Schneider v. Deam, Case No. A150027 (1^st Dist., Div. 2 May 29, 2018) (unpublished).

            There, appellant filed a limited action to recover $1,613 in unpaid fees, with the two retainer agreements having narrow fees clauses which stated: “In the event of legal proceedings as to any account, the prevailing party is entitled to attorneys’ fees.” Defendant ex-client filed an unlimited jurisdiction cross--complaint sounding in tort/contract and praying for damages in excess of $815,000. After the dismissal of the cross-complaint, plaintiff moved to recover $42,265.85 in legal fees under Civil Code section 1717 and the contractual fee agreement. The trial court said “no.”

            The appellate court agreed with the trial judge’s “no” assessment.

            There was an initial jurisdictional jumble to address. Plaintiff’s complaint had not been disposed of, but that “snag” did not matter because any judgment in the limited civil action would go through the superior court appellate division instead. The cross-complaint judgment was indeed final and appealable.

            On the merits, plaintiff failed to demonstrate how the narrow fees clause applied to the cross-complaint tort and contractual cross-claims. Simply skipping ahead to the Civil Code section 1717 “prevailing party” analysis did not remedy the failure to show a fees clause with a fee entitlement basis in the first instance.

Fee Clause Interpretation, Interpleader, Section 1717: Bank Winning Fee Award For Prosecuting Interpleader Cross-Complaint And Successfully Defending Against Plaintiff’s Complaint Reversed And Remanded

Appellate Court Offered Guidance, Including That No Section 1717 Adverse Fee Award On Plaintiff’s Complaint Could Be Granted On Grounds Advanced By Lender.

            Plaintiff octogenarian sued her lender on various theories stemming from lender’s failure to disburse timely insurance proceeds covering a fire loss.  In response to plaintiff’s Complaint, Lender filed an interpleader cross-complaint.  The trial judge sustained a demurrer to plaintiff’s complaint and discharged lender through the interpleader, later ordering $68,265 in attorney’s fees (the full request) to lender for prosecuting the interpleader and successfully defending against plaintiff’s complaint and ordered fees payable from the interplead insurance proceeds.

            Because the demurrer to plaintiff’s complaint should have been overruled, the fee award also was reversed, with remand guidance, in Rodriguez v. Banco Popular North America, Case No. B280489 (2d Dist., Div. 5 May 4, 2018) (unpublished). 

            The appellate court acknowledged that Lender, if eventually successful in the interpleader, is entitled to statutory fees (Code Civ. Proc., § 386.6(a)), but that it could locate no authority indicating that the section 1717 fees relating to plaintiff’s complaint could be paid out of interplead funds.  Beyond that, however, guidance was offered on remand.  In particular, Lender’s reliance on a deed of trust provision only allowed it to add attorney’s fees to the borrower’s loan, not seek an independent award of fees in a court action.  With respect to the note provision relied on by Lender, plaintiff did not sue under the note but relied on her contractual rights to disbursement of insurance proceeds, such that this ground could not be advanced as a basis for fee entitlement under section 1717. 

Allocation/Fee Clause Interpretation: $66,103 Fee Award Against Losing Plaintiff/Cross-Defendant Affirmed Based On Broad Fees Clause And Common Intersection of Complaint And Cross-Complaint Claims

Underlying Dispute Related To A Grading Of Dr. J’s 1972 Trading Card.

            This next case illustrates an interesting application of attorney’s fees principles we have seen in many cases to a dispute over grading of a Dr. J trading card.  Let’s get to it.

            In Knafo v. Collectors Universe, Inc., Case No. G055112 (4^th Dist., Div. 3 Apr. 30, 2018) (unpublished), plaintiff submitted a 1972 Julius Erving (Dr. J) trading card to defendant for grading in line with the terms of a written submission agreement, also referencing a guarantee by defendant.  The submission agreement contained a broad fees clause encompassing “any action to enforce the terms and condition of [the agreement] or otherwise arising under or with respect to [it].”  After defendant asked plaintiff to return the card based on an incorrect “Gem Mint 10” rating, plaintiff refused to return it, provoking a complaint by plaintiff to seek the full value of the incorrect grading and defendant filed a cross-complaint seeking to obtain a return of the card for the correct rating.  Defendant won on both counts, with the judgment requiring a return of the Dr. J card for correction of the Gem Mint 10 grading.  Then, defendant moved for fees under the broad contractual clause, with the trial judge granting $66,103 in fees.

            Plaintiff lost appeals of the merits judgment and the subsequent fee award.

         The problem here was that the defense pled the submission agreement, which encompassed the guarantee, as an affirmative defense to the complaint such that fees for both defending against the complaint and prosecuting the cross-complaint were covered and were interrelated in nature. 

            BLOG WELCOME—We note that this case was decided by Justice Goethals, who was recently appointed to the 4/3 DCA and is among some of first decisions on the appellate bench. 

Assignment, Deed Of Trust, Fee Clause Interpretation: Defendant Lender Entitled To Fee Award Under Deed Of Trust Fees Clause For Winning Conversion Claim Against Plaintiff’s Assignee

Fees Clause Was Broad Enough To Encompass Conversion Claim And Assignees Were “On The Hook.”

            In Sanchez v. El Monte Investments, LLC, Case No. B276423 (2d Dist., Div. 5 Mar. 27, 2018) (unpublished), former property owner sued her lender for conversion of certain insurance proceeds retained by the lender after fire damage to the property following a court order that lender was entitled to the proceeds.  Former owner eventually assigned her claim to her attorneys, who lost at trial and were ordered to pay lender’s attorney’s fees of $35,525 (out of a requested $42,350) under a deed of trust fees provision.  The fees clause obligated former property owner “to appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of [lender]; and to pay all costs and expenses, including … attorney’s fees in a reasonable sum, in any action or proceeding in which [lender] may appear, and in any suit brought by [lender] to foreclose this deed.” 

            Appellant law firm appealed, but the fee award stood.  The appellate court agreed that the conversion claim fell within the ambit of the broad deed of trust clause, and that the law firm as assignee had to bear the burdens as well as the benefits of the assignment (inclusive of the adverse fee award).

Costs, Fee Clause Interpretation, Section 1717: Successful Attorneys On Contract Claim Properly Granted Fees; Successful Plaintiff On Tort Claims Properly Denied Fees; And Plaintiff Improperly Denied Costs As Prevailing Party With Net Judgment In Malpra

Many Cross-Over Fees And Costs Issues Considered By Appellate Court In This One.

            In Davidson v. Southwick, Case No. E066978 (4^th Dist., Div. 2 Mar. 26, 2018) (unpublished), plaintiff client successfully won a malpractice action based on various torts but lost a contract claim against certain attorney parties, winning a compensatory jury verdict of $48,382.93.  On appeal, that judgment was reversed down to $4,804 on causation grounds.  The trial judge denied client any fees and costs, while awarding fees to the attorney parties under the retainer agreement and Civil Code section 1717.

            Plaintiff’s appeal of these rulings resulted in an appellate determination that she should have been awarded costs.

            With respect to the fee awards, the operative retainer agreement fee provision was narrow in scope, applying only to “an action or proceeding to enforce any provision of this [Retainer] Agreement.”  Because of this narrow breadth, client’s wins on tort claims were not “on the contract” under section 1717 (justifying a denial of fees), contrasted with attorneys’ winning on the contract claim so as to be entitled to fees (although the trial judge only awarded $10,000 out of a requested $77,800, apportioning fees such that the award only related to contractual work).

            However, plaintiff did win on the argument she was erroneously denied routine costs.  She was the prevailing party as far as a “net judgment,” and had filed a memorandum of costs (which, even if premature, was a procedural irregularity causing no prejudice to the other side).  Plaintiff was not entitled to expert witness fees in connection with her fee motion, because expert fees of this nature are not recognized as allowable costs.

Fee Clause Interpretation/Prevailing Party: Fifth District Reverses Costs Denial, Remands For Redo On Fee Clause Interpretation, And Reverses 128.7 Sanctions Award

Appellate Court Did De Novo Review On Most Issues.

            In a fairly lengthy decision, the Fifth District basically reversed trial court determinations on fees and costs issues in Johnson v. Johnson, Case No. F073191 (5^th Dist. Feb. 26, 2018) (unpublished), involving a dispute between siblings arising out of their real estate partnership where the partnership agreement stated the prevailing party was entitled to recover attorney’s fees “actually expended” if “litigation is instituted with respect to any matter regarding the covenants in this Agreement.”  The lower court determined the sister was the prevailing party, awarding her costs and about $135,000 in attorney’s fees.  Brother appealed, arguing he was the prevailing party because the jury awarded him $12,822 on a breach of contract claim despite the fact sister won a defense verdict on three tort claims submitted to the jury.

            First, with respect to the costs award, brother was indeed the “prevailing party” under CCP § 1032 because he obtained a net monetary recovery such that sister was erroneously awarded costs and he was erroneously not awarded costs.

            Second, on the question of attorney’s fees, the appellate court did agree that all the four causes of action submitted to the jury, both the tort and contract claims, were subject to fee recovery, but under CCP § 1021 rather than Civil Code § 1717.  With this in mind, brother made a sufficient legal showing on appeal that he actually prevailed because he was awarded contractual damages by the jury and he achieved prelitigation objections with a financial benefit to him of over $300,000.  So, a remand was in order to gauge if he did prevail given the reviewing court’s interpretation of the fees clause.  (On this issue, the appellate court determined that “actually expended” meant amounts actually paid by the litigant.)

            Finally, on the sanctions issue, the trial court did not provide the mandatory 21-day safe harbor notice required in its OSC order and did not issue as OSC describing the specific conduct to be potentially sanctioned with required specificity.

            Brother did well to appeal, to say the least. 

Fee Clause Interpretation/Section 1717: Fifth District, In Split Decision, Decides That Permissive Fee Clause Is Enforceable By Its Terms, With Section 1717 Not Applying

Dissent Argues That Section 1717 Does Have Precedence In This Situation, So That Fees To Prevailing Party Should Be Determined Upon A Remand.

            In City of Dinuba v. Universal Biopharma Research Institute, Inc., Case No. F072497 (5^th Dist. Feb. 20, 2018) (unpublished), City of Dinuba filed an unlawful detainer action against two defendants, although the Biopharma defendant was not named as the tenant under the commercial lease.  A jury found that Biopharma was a not a party to the lease and not liable to City.  Biopharma moved for attorney’s fees as prevailing party (no one disputed this) to the tune of about $197,000 under a fees clause, but one which was “permissive” in nature, to wit: “In the event of any proceedings brought by either party against the other under this lease, the prevailing party may be entitled to recover the fees of their attorneys in such action or proceedings for such amounts as may be adjudged reasonable attorney’s fees.”  The trial court, interpreting this clause as discretionary, denied fee recovery, prompting an appeal by Biopharma.

            The Fifth District affirmed, but in a 2-1 decision drawing a lengthy dissent by Justice Meehan.

            The majority concluded that CCP § 1021 allows the parties to craft their own conditions for an award of attorney’s fees such that Civil Code section 1717 does not apply to discretionary attorney’s fees so as to lead to a different result.  Put another way, the majority believed section 1717 applied only to mandatory fee clauses.

            Justice Meehan did not buy the majority reasoning in her dissent.  In an extended discussion of jurisprudence under section 1717, in a situation she characterized as being a “case of first impression,” Justice Meehan concluded that (1) CCP § 1021 cannot override Civil Code section even for “permissive” fee clauses, and (2) the “may” language in the clause could be interpreted to only confirm that it does not apply to non-contract situations (the law under section 1717).  She did argue that the “may” language was void and had to be replaced with the statutory terms required by section 1717.  Here is her policy-based, bottom line reasoning:  “Without the mandatory application of section 1717 to all contractual fees clauses to enforce the contract, parties are free to enter into unilateral agreements, craft their own definition of prevailing party and create their own requirements for reasonableness.  Courts have no clear standards independent of section 1717 by which to resolve disputes on those matters.  The statute’s goal of uniform and evenhanded treatment of attorney fees awards will be defeated and those in unequal bargaining positions will again be exposed to the deceptive and oppressive tactics the statute was designed to eliminate.  This result is unwarranted ….”

(Dissenting Slip Op. at 4.)  She would have remanded the matter to allow the trial judge to fix a reasonable fee award in Biopharma’s favor.

Fee Clause Interpretation: Trial Judge’s Award Of Fees Based On Promissory Note Fees Clause Was Erroneous

$53,637 Contractual Fees Award Went POOF! On Appeal.

            In Clark v. Delay, Case No. D072856 (4^th Dist., Div. 1 Jan. 19, 2018) (unpublished), plaintiff filed suit over a partnership dissolution dispute mainly involving the claim that plaintiff did not get insurance proceeds under a buy-sell type of alleged oral arrangement.  Among other documents, there was Note carried back by defendant so that plaintiff could purchase defendant/her husband’s partnership interest.  The Note had the following fee provision:  “Should suit be commenced or an attorney employed to enforce the payment of this note, I agree to pay such additional sum as the court may adjudge reasonable as attorney’s fees in said suit.”  Defendant ultimately defensed plaintiff’s claims hinged on the lower court’s determination that he failed to present sufficient evidence about an oral modification to dissolution documents relating to the insurance issue.  The trial judge then awarded Defendant $53,637 in attorney’s fees under the note fees clause.

            The fee award got reversed as a matter of law and stricken from the judgment on appeal.

            Although assuming that the note was incorporated by reference into the main dissolution agreement, the problem for the defense was that the dispute did not involve enforcement of payment obligations under the note but ancillary claims under which plaintiff would not have been able to recover fees even had he won.  The narrowness of the clause steered the determination in this appellate opinion. 

Fee Clause Interpretation: Fee Clauses Only Allowing Recovery For Arbitration Related Work Did Not Give Entitlement To Fees For Trial Work Only

Fee Clause Was Unambiguous In Nature.

            After a lot of trial activity (including fraud claims adjudicated against a defendant in a bench trial), the successful plaintiff obtained an attorney’s fees award based on an LLC operating agreement provision allowing for fees limited to “reimbursement of attorney fees, costs and expenses incurred in connection with the arbitration.”  Defendant rightfully appealed fee recovery based on the clause only limiting work to an arbitration, which did not occur.  The appellate court agreed, reversing the fee recovery as a matter of law in Moladina v. Naimi, Case No. B261689 (2d Dist., Div. 5 Jan. 10, 2018) (unpublished). 

Construction/Fee Clause Interpretation/Section 1717: Fees Clause In Masonry Subcontractor-Material Supplier Contract Did Not Trigger Third Party Beneficiary Exposure Against Real Property Owners Who Did Not Prevail Against Material Supplier

Specific Breadth Of Clause Was Dispositive.

            Prince v. Thompson Building Materials, Case No. B280813 (2d Dist., Div. 2 Jan. 9, 2018) (unpublished) involved a situation where real property owners sued a material supplier to enforce contractual warranties under a third-party beneficiary against their masonry subcontractor.  Ultimately, owners lost and material supplier sought to recoup Civil Code section 1717 based on a fees clause in the contract with its masonry subcontractor.  The trial judge denied the fees request, a determination affirmed on appeal.

            Material supplier appealed on the third-party beneficiary theory, based on the fact real property owners were attempting to enforce contractual warranties in a contract so that they should have to bear the burden of so doing through the fees clause in the same contract.  With respect to the third-party beneficiary legal theory, the appeal pitted a “specific intent” test in Sessions Payroll Management, Inc. v. Noble Construction Co., 84 Cal.App.4^th 671, 680-681 (2000) against a “sufficient nexus” test articulated in Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4^th 375, 380 (1994).  The problem here for the appellate court in Prince was that it could not find that these decisions were at odds given the need to examine the specific language of the contract fees clause at issue.  When that was done, the language only applied between masonry subcontractor and material supplier and did not give specific rights to third parties (containing “either party” rather than “any party” language).  Fee denial affirmed. 

Fee Clause Interpretation: Narrow LP Agreement Fee Clause Did Not Allow For Tort Recovery Against Unsuccessful Investor Plaintiff

$657,000 Fee Award For Defense In Investment Dispute Went Away Based On Interpretation Of Fees Clause. 

            As we have posted many time under our category “Fee Clause Interpretation,” a fees clause in many an agreement may require an appellate court to reverse a significant fee recovery where the clause in narrow in scope.

            Stella v. Asset Management Consultants, Inc., Case No. B276686 (2d Dist., Div. 7 Jan. 8, 2018) (unpublished) is just such a situation. 

            There, plaintiff lost a fraud investment dispute against defendants, who sought to recover fees under a limited partnership agreement fees clause relating to “any action or proceeding between the parties seeking enforcement of any of the terms and provisions of this Agreement ….”  After ultimately prevailing on the tort-based claims, the trial judge awarded the defense $657,000 in attorney’s fees based on the LP Agreement fees clause.

            That determination was reversed as a matter of law.  The main problem was that this clause only authorized fees in connection with contract claims, not the tort claims which were at issue.  Although recognizing that prosecuting an affirmative defense cannot give rise to fee recovery (see Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 3 Cal.5^th 744 (2017) [our Leading Case No. 22]), the defense tried to make a creative argument that certain earlier procedural steps—such as prior motions to enforce the dispute resolution provision of the LP Agreement and a successful statute-of-limitations demurrer—were “enforcement” steps for purposes of the fees clause.  The appellate court did not embrace this argument.  “Action or proceeding” for fee clause purposes, generally, refers to the litigation as a whole rather than just finite steps along the way.  Fee determination reversed as a legal matter.

Deeds Of Trust, Fee Clause Interpretation, Section 1717: Attorney’s Fee Recovery Not Available To Lenders/Affiliates Based On Vague Provisions In Note And Deed Of Trust

Decision Should Have Lenders Look At Lending Paperwork To Make Sure There Is A True “Prevailing Party” Clause.

            In Luca v. Deutsche Bank National Trust Co., Case No. G053408 (4^th Dist., Div. 3 Jan. 5, 2018) (unpublished), borrowers lost a lawsuit attempting to void the promissory note and deed of trust against lenders/affiliates based on a defense summary judgment motion, a determination affirmed in a separate appellate decision.  The trial judge denied the defense request for attorney’s fees under four separate note or deed of trust provisions.  The 4/3 DCA, in a 3-0 decision authored by Justice Ikola, agreed with the fee denial.

            The problem was that defendants relied on four separate provisions scattered through the note and deed of trust, but none of them were true “prevailing party” fee clauses triggering the application of Civil Code section 1717.  Rather, they dealt with third-party situations, only allowed the lenders to “add” the fees to the debt, allowed the lenders to apply any fees against trustee sale proceeds, or allowed the lender “to be paid back.”  Here is the crux of the appellate court’s reasoning on fee entitlement: “Ultimately, Civil Code section 1717 requires a contract to ‘specifically’ provide for attorney fees. There are many challenges facing attorneys drafting transactional documents. But in general, a specific attorney fee provision is not one of those challenges. In most cases, it can be accomplished in a single sentence, and a specific citation to Civil Code section 1717, though not required, makes the parties’ intent abundantly clear. For that reason, we are not inclined to indulge vague fee provisions like those relied on here.”

            Lenders may want to review their paperwork, in light of this decision, and supplement their documents with a more precise “prevailing party” fees clause. 

Appealability, Equity, Fee Clause Interpretation: Four California Intermediate Appellate Courts Address Diverse Attorney’s Fees Issues

Galindo v. Polakoff, Case No. D071555 (4^th Dist., Div. 1 Nov. 29, 2017) (Unpublished)—Equity/Offsets.

            In this one, the Court of Appeal affirmed an offset determination by the trial judge where it did grant fees to one party prevailing but even after an offset conclusion was reached.  Must reading for practitioners facing offset issues under Code of Civil Procedure section 431.70, showing that a merits offset may still not determine who ultimately prevailed—“There is nothing in section 431.70 that supports [appellant’s] interpretation to equate a subsequent prevailing party attorney fees award with the relief on the underlying dispute, through allowing a setoff amount claimed pursuant to cross-demands.”  (Slip Op., at p. 25.)

R.W.L. Enterprises v. Oldcastle, Inc., Case No. D070189 (4^th Dist., Div. 1 Nov. 29, 2017) —Equity/Contractual Integration.

            This second case really came down to whether a subsequent credit application, entered into about nine years later (with a potential attorney’s fees clause), should be interpreted as integrated (or, in essence, incorporated by reference) into an earlier contract.  The trial judge bought into the integration argument, awarding $180,120 to a party successfully defending a breach of contract claim.  This result got reversed as a matter of law.  There was too much of a temporal gap to allow for an integration analysis, whether under Civil Code section 1717 or the UCC.  There is a great discussion for practitioners on the “battle of the forms” issue and the extent to which Boyd v. Oscar Fisher Co., 210 Cal.App.3d 368 (1989) should apply under the circumstances (or is still good law on certain aspects of its reasoning).

Throckmorton v. Soria, Case No. A144748 (1^st Dist., Div. 2 Nov. 29, 2017) (Unpublished)—Appealability.

            The third decision is a case where—alas!—the appellant failed to appeal from a separately appealable fee order and failed to provide motion papers/fee hearing reporter’s transcript.  The appeal was doomed for two independent reasons—failure to appeal a separate appealable order and failure to provide an adequate record.

2437 Piedmont Avenue, LLC v. Schwartz, Case No. A150274 (1^st Dist., Div. 2 Nov. 29, 2017) (Unpublished)—Fee Clause Interpretation.

            This last one is where an owner/landlord sued for fraud, but dismissed its action, with tenant then moving for attorney’s fees under a lease fees clause.  The trial court denied the fee request, which was sustained on review.  The problem was that the tort claims were not brought to “enforce” the lease such that the narrow fees clause language did not provide a basis for fee entitlement.  

Fee Clause Interpretation/Section 1717: Significant Fee Awards Affirmed In Favor Of Lenders And Prevailing Party In Easement Dispute

Courts Focused On Plain Meaning Of Fee Clauses, Primarily.

Lawson v. Cal Western Reconveyance Corp., Case No. A142956 (1^st Dist., Div. 4 Nov. 20, 2017) (Unpublished).

            Here, after two banks prevailed in a nonjudicial foreclosure challenge by borrowers, the trial judge awarded both $ 137,150 in attorney’s fees under note and trust deed fee clauses.  That award was sustained on appeal.  After observing that Civil Code section 1717 only makes non-mutual clauses mutual but does not otherwise impact the interpretation of the fee clauses themselves, it found that judicial admissions, the agency relationship between one bank and the other, and breadth of the trust deed language all supported a conclusion that the fee award was proper.  Also, a $250 hourly rate was found reasonable for the Marin County area and San Francisco Bay area generally.

DIII Properties, LLC v. EDF Renewable Energy, Inc., Case No. A149217 (1^st Dist., Div. 5 Nov. 20, 2017) (Unpublished).

            In this second one, a prevailing party in an easement dispute (in a multi-count complaint including a claim for declaratory relief), was awarded $158,616.90 in fees based on a fees clause in an easement agreement clarified by a subsequent letter agreement.  Although arguing recovery was only for trespass (a tort not within the reach of section 1717), the appellate court—as did the trial judge—disagreed based on the scope of the pleadings, especially the declaratory relief claim which did sound “on the contract.”

Fee Clause Interpretation/Settlement: Settlement Agreement’s Carve-Out Language And Broad “Related To” Language Allowed For Fee Recovery In General Contractor – Subcontractor Dispute

 

Need For Precise Draftsmanship Demonstrated By This Case.

            In Global Modular, Inc. v. Kadena Pacific, Inc., Case No. E063551 (4^th Dist., Div. 2 Sept. 8, 2017) (published), general contractor, subcontractor, and subcontractor’s general liability carrier were drawn into a dispute about water damage to a construction site.  A partial settlement was reached by all parties, with the trial judge eventually determining that general contractor was entitled to $360,000 in fees from subcontractor pursuant to the settlement agreement, finding the releases in the agreement did not prevent fee recovery.  The appellate court affirmed the fee award.  Subcontractor did agree to pay general contractor for activities in “enforcing any provision or obligation arising under” the contract, which was involved in the litigation.  The carve-out provision in the releases further cemented fee recovery, given that claims were not released for the project that were “related to” damages covered under the insurance policies.  Finally, the “related to” language did cover property damages, including attorney’s fees pursued in relation to those damages.  Obviously, precise draftsmanship was needed to provide a different result.

Assignment/Fee Clause Interpretation/Section 1717: Bankruptcy Trustee’s Assignment Of Sublease Rights Invoked Fee Clauses To Prevailing Party

Landlord Did Prevail, Entitled To Fee Recovery Based On Breadth Of Fees Clause.

            Bush-Grant, LLC v. Hotel Astoria, Inc., Case No. A147456 (1^st Dist., Div. 4 Aug. 29, 2017) (unpublished) demonstrates how a tort claim can still be compensable under a broad fees clause, even if Civil Code section 1717 is inapplicable because the action is not “on the contract.”

            What occurred in this case was that an individual tenant with a long-term commercial lease subleased to tenant’s corporate affiliate and later assigned the sublease to another LLC affiliate, with individual filing for bankruptcy and with the bankruptcy court determining that the LLC’s interest in the lease was property of the bankruptcy estate needing to be relinquished to the bankruptcy trustee.  Eventually, the bankruptcy trustee entered into any agreement with landlord by which individual tenant’s sublease rights were assigned to landlord.   However, subtenant “held over” so as to prompt landlord to file a successful unlawful detainer action, obtaining contractual attorney’s fees under broad lease fees clauses.   Subtenant’s appeal of the fees award failed.

            Based on the bankruptcy trustee’s assignment of rights to landlord, landlord stepped into sublessor’s shoes so as to enforce the sublease provisions inclusive of the sublease fees clause.  Nevertheless, the appellate court had to classify the nature of the unlawful detainer, namely, was it based on contract or tort.  It concluded that the action was a tortious “hold over,” which meant fee recovery could not occur under Civil Code section 1717.

            But this nusance did not matter.   The fee clause was broad in nature, covering “any suit against Lessee … for recovery of possession of the demised premises.”  Given this broad provision, fee recovery was allowable in the unlawful detainer action under Code of Civil Procedure section 1021, which provides the parties have the right to enter into agreements for the award of fees in litigation on their own terms,  covering actions in contract, tort, or equity. 

Deadlines, Fee Clause Interpretation, Reasonableness Of Fees: $210,000 Contractual Fees Award Affirmed On Appeal In Contentious Foreclosure/Eviction Case

 

Technical Challenges Are Rejected At Appellate Level.

            In Coastline RE Holdings Corp. v. Brillouet, Case No. B282382 (2d Dist., Div. 6 Aug. 24, 2017) (unpublished), owners/residential borrowers had their house foreclosed (after quitclaiming the property to various entities and filing bankruptcies which were dismissed) and then lost an eviction action by the buyer who obtained the property at the nonjudicial foreclosure sale.  The buyer designated the unlawful detainer action as an unlimited civil action, but the superior court clerk mistakenly designated the case as a limited case—an error eventually corrected along the way.  Buyer eventually gained possession of the property, was awarded damages for 10 months of lost rent, and was awarded $210,000 in contractual attorney’s fees based on a fees provision in the deed of trust.  Losing owners/borrowers appealed, with no success.

            Based on the argument that this was a limited case (which was rejected by the appellate court), appellants argued that the fee motion was untimely based on the 30-day deadline to file fee motions in limited cases.  The 2/6 DCA disagreed, finding this was an unlimited case and, beyond that, no notice of entry of judgment was served such that the fees motion was timely served 90 days after entry of judgment even under limited case rules.

            There was a contractual basis for the fee award, based on the deed of trust fees provision, which was violated when appellants remained in possession after foreclosure. 

            The amount of the fee award was sustained on appeal, given that (1) appellants did not make specific objections to fee items before the trial court, and (2) appellants did not disprove that the fees were not reasonably related to the unlawful detainer action vigorously contested by them below.

Allocation/Fee Clause Interpretation: One Prevailing Defendant Entitled To Some Fee Recovery Under Promissory Note Fees Clause

However, That Defendant’s Assertion Of A Contract As An Affirmative Defense Required Some Paring Back of Fees Under Recent Mountain Air Decisio

            On August 1, 2017, we posted on Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 2017 WL 3222520 (Cal. Supreme Court 2017).  A panel of the 2/4 DCA delayed submission of a matter based on the pendency of Mountain Air and has now applied it in Morrison v. Morrison, Case No. B269435 (2d Dist., Div. 4 Aug. 23, 2017) (unpublished).

            The case involved a fairly nasty dispute between two children, a grandson, and companies associated with them relating to adult bookstore companies left behind by the father of the children and grandfather of grandson, complete with one of the children apparently entering into transactions to avoid tax evasion repercussions.  After a fairly complex bench trial, plaintiff Michael and a one of the companies basically lost all claims, but the appellate court reversed on certain claims and remanded to see that they be decided on the merits.  They were, with plaintiff Michael and the company still losing except for one claim relating to a defendant entity.  Defendant Mindey, who prevailed on all claims, moved to recover $96,273.83 in attorney’s fees under Civil Code section 1717 based on fees clauses in a promissory note and a stock repurchase agreement (SRA), although the SRA was raised as an affirmative defense to Michael’s claims.  The trial judge awarded Mindey $54,402 for promissory note work (not apportioning any due to the overlapping nature of the issues with other claims) and $14,897 for work relating to the SRA defense work (for a total award of $69,299). 

            The appellate court affirmed the first component, but reversed the $14,897 component. 

            The first component was justified based on the promissory note fees clause, with no apportionment necessary because the issues in all causes of action overlapped.  However, the fee recovery based upon enforcement of contract in defense was foreclosed by Mountain Air given that the SRA fees clause only encompassed fee recovery “in any legal action or other proceeding brought by either party to enforce or interpret the terms of the Agreement”—which did not cover affirmative defense work.  That being said, the partial affirmance and reversal did put to rest the fee battle between some of the parties.

Allocation, Fee Clause Interpretation, Prevailing Party, Section 1717: Lease Rescission Claim Did Give Rise To Successful Fee Recovery To The Tune Of $418,730.75 In Fees And $16,260.79 In Costs In Tenant’s Favor

“Any Remedy Hereunder” Lease Language Salted Away The Result.

            In The Redbean House Corp. v. Colonnade Wilshire Corp., Case No. B276837 (2d Dist., Div. 2 Aug. 16, 2017) (unpublished), tenant successfully obtained rescission of a commercial lease based on a substantial seismic retrofit issue, although landlord obtained $49,647 in damages for waste after a lot of claims were dismissed by both sides, including landlord’s dismissal of a breach of lease claim.  Then, in post-judgment activities, the trial judge awarding tenant $418,730.75 in attorney’s fees based on a lease fees clause and $16,260.79 in routine costs.

            Landlord appealed the fees/costs orders; landlord lost.

            The first issue was whether rescission of the lease was compensable under Civil Code section 1717.  It was; the lease clause had broad language including “any remedy hereunder” which happened to encompass a rescission remedy.  Given that lease rescission was tenant’s primary litigation objective, the lower court did not abuse its discretion in finding tenant was the prevailing party despite dismissing and not winning every claim.  Landlord’s voluntary dismissal of its breach of contract claim did not alter the result, given that tenant still prevailed on an actually adjudicated claim of import.  (CDF Firefighters v. Maldonado, 200 Cal.App.4^th 158, 161, 167 (2011).)  Finally, no apportionment of fees was required because the trial judge determined that enforceability of the lease was a common issue across the board.  Fees/costs orders affirmed. 

Fee Clause Interpretation: California Supreme Court Decides That Parties’ Assertion Of An Affirmative Defense Is Not An “Action” Or “Proceeding”

However, Majority Still Allows Fee Recovery Based On Interrelatedness Of Two Agreements In Overall Action, Although Dissent Finds This Result Unwarranted.

            Today, the California Supreme Court came out with an important fee decision in the form of Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, Case No. S223536 (Cal. Supreme Court July 31, 2017) (published).  Although unanimous on the first issue, there was a 4-3 split decision on the second issue.

            The matter arose out of a complicated real estate transaction by which a plaintiff brought both a specific performance and breach of repurchase agreement action against the defense.  Two agreements were involved in the case, an option agreement and a repurchase agreement.  The defense raised an affirmative defense of novation based on the option agreement, a defense that was successful.  It did prevail eventually, but the trial judge concluded no fee recovery was allowable because the assertion of an affirmative defense did not fall within the definition of the option agreement fees clause allowing recovery when “an action” or “a proceeding” was brought.  The appellate court disagreed on the affirmative action issue, although there was a split in authority between Exxess/Gil (no recovery) and Windor (recovery).  We posted about the appellate decision way back on November 21, 2014.  The state supreme court granted review to resolve this split.

            On the affirmative defense issue, all seven justices agreed that fees should not be recovered because an affirmative defense was not the equivalent of an action or a proceeding for purposes of the option agreement fees clause.

            However, the majority (four justices) found the defense still was entitled to recovery based on the fact that the case involved inextricably intertwined connections between the two agreements, although the fees clause was in the option agreement and plaintiff had sued to compel a purchase of a building by the defense based on specific performance action and breach of a repurchase agreement counts (with the repurchase agreement not having a fees clause).  The majority expressly declined to articulate the exact nature of the causal link necessary, but found the issues arising under the two agreements were “inextricably intertwined” under the “because of” language in the option agreement fees clause.  The minority (3 justices) did not agree that there was a sufficient connection such that they dissented from the majority’s interpretation of the fees clause language.

            BLOG OBSERVATION—The majority was comprised of Justices Chin (author), Cantil-Sakauye (Chief Justice), Werdegar (who is retiring in August of this year), and Cuellar, while the minority justices were Kruger (author of dissent), Corrigan, and Liu.  I do believe that the failure to articulate the contours of a “causal link” test, relying only on the Civil Code section 1717 “inextricably intertwined” rubric, will engender further jurisprudence on this point where there are separate contracts or independent legal bundles of rights involved in a particular case.

Fee Clause Interpretation: 4/1 DCA Reverses Denial Of Attorney’s Fees Under Binding Letter Of Intent

Given That Plaintiffs Did Not Challenge Reasonableness Of Requested Fees, Judgment Modified To Allow Defendants Over $2.45 Million In Fees/Costs.

            We have posted on a lot of cases about reversal of fortunes, and the next one is one of them.  It may counsel that litigants need to oppose both fee entitlement and reasonableness of fees (or related “fee amount” issues) in order to avoid a colossal reversal of fortune.

            In Pacifica Companies v. Patel, Case No. D066885 (4^th Dist., Div. 1 July 14, 2017) (unpublished), litigation ensued over a letter of intent (LOI) about an Indio development project.  Ultimately, plaintiffs lost on their claims but won on a limited cross-claim by one defendant.  The trial judge denied fees to the defendants under an LOI fees clause, determining that the LOI was not a binding contract but only an “agreement to agree.”

            The 4/1 DCA reversed and did something unusual—modified the judgment to award all defendant $2,453,977.50 in fees and costs (the requested amount).  The reason for doing so was the appellate court’s conclusion that the LOI was a binding LOI (contractually) even if the parties could not further reduce the terms to a further writing.  However, given that the plaintiffs never challenged the reasonableness of fees, that led the Court of Appeal to modify the judgment to award $2.45 million in fees and costs to the defendants and alter ego parties in light of its reversal based on fee entitlement!  Quite a change in fortune.

Fee Clause Interpretation/Section 1717: Prevailing Seller Co-Conspirator Defendant In Real Estate Listing Dispute Properly Awarded Fees Under Broadly Worded Fees Clause

Section 1717 Reciprocity Principles Applied.

Charlie Price Realtor donkey statue, Routes 62 & 82.  John Margolies, photographer.  1993.  Library of Congress.

        In Impact Realty, Inc. v. Ortega, Case No. B272040 (2d Dist., Div. 1 June 14, 2017) (unpublished), real estate brokers sued a seller for breach of contract as well as sued a seller and two alleged agents--a co-conspirator outside broker and escrow company--for fraud based on seller’s purportedly reneging on a listing agreement. In the listing agreement, there was a fees clause stating “in any action … between Seller and Broker regarding the obligation to pay compensation under this Agreement, the prevailing Seller or Broker shall be entitled to reasonable attorney fees and costs from the non-prevailing Seller or Broker ….” Co-conspirator outside broker prevailed in plaintiff brokers’ action and was awarded $25,073 in contractual attorney’s fees.

          The fee awarded was sustained on appeal. Losing plaintiff claimed that it sued winning co-conspirator outside broker for fraud, such that Civil Code section 1717 did not allow for fee recovery. The appellate court disagreed, relying primarily on Kahn v. Shim, 7 Cal.App.5th 49, 55-56 (2016), by finding that the wording of a particular provision may afford a defendant a contractual right to fees which was satisfied here—after all, the fraud claim did involve a dispute regarding “the obligation to pay compensation” under the listing agreement.

Fee Clause Interpretation/Section 1717: $1.79 Million Fee Award To Prevailing Defendants Was Excised As A Matter Of Law From Judgment Based On Lack Of Fee Entitlement

 

Plaintiff Sued On An Oral Agreement Which Was Not Within The Scope Of Stock Purchase Agreement Fee Clause Relied On By The Defense.

 

     Fee entitlement is a basic issue, often tethered to whether a fees clause in a written contract covers the claims at issue in a complaint or cross-complaint. If it does not, you can obtain the result reached in Beck v. NoBug Consulting, Inc., Case No. H040136 (6^th Dist. Mar. 20, 2017) (unpublished).

 

    In Beck, defendants did prevail on claims for breach of oral contract and fraud against plaintiff in arduous litigation. The defense was then awarded over $1.79 million against plaintiff based on a fees clause in a written Stock Purchase Agreement.

 

    The Sixth District modified the judgment to delete the fee award as a matter of law.

 

    The problem here was that plaintiff was pursuing recovery on an oral agreement having no fees clause, given that the gist of his claims were to enforce an oral obligation to enter into a written Stock Purchase Agreement. The fees clause only related to enforcing the obligation "of an other party pursuant to this Agreement." Given the fees clause did not relate to the oral agreement, there was no fee entitlement basis and no basis for the fees award jettisoned on appeal.

Deed Of Trust/Fee Clause Interpretation/Section 1717: $14,500 Attorney Fee Recovery In Favor Of Lenders Affirmed On Appeal

 

Plaintiff's Claims Implicated Contract Based Claims And Broadly Worded Fees Clauses In DOT Covered Tort Claims Also.

 

    In Kalnoki v. First American Trustee Servicing Solutions, LLC, Case No. C073207 (3d Dist. Feb. 1, 2017) (partial published; fee discussion unpublished), plaintiff lost wrongful foreclosure-related claims against a lender's assignee/successor, with the trial judge awarding $14,500 out of a requested $31,570 based on broadly worded promissory note and deed of trust fees clauses.

 

    The losing plaintiff's challenges to the fee award did not resonate on appeal.

 

    Plaintiff's breach of implied covenant and rescission were "on the contract" so as to justify fee recovery, not to mention that the broadly worded trust deed clauses protecting lender's security from impairment also encompassed the tort claims relating to wrongful foreclosure. Beyond that, the fact that the prevailing defendant was a successor or assignee to the original lender did not prevent it from being able to enforce the contractual fee clauses.

Fee Clause Interpretation, Homeowner Associations, Section 1717: Large Fee Recovery To Prevailing Defendants In Common Interest Development Parking Space Dispute With Other Homeowners Reversed

 

Only Time Finite Fees On Trespass Claim Recoverable Under HOA Fee-Shifting Statute.

     In Hussein v. Driver, Case Nos. A144786/A145655 (1^st Dist., Div. 4 Jan. 27, 2017) (unpublished), plaintiffs and defendants, homeowners in a common interest development as well as the parents of defendants, were drawn into a parking space dispute where slander of title, interference with contract, and trespass claims were involved. Defendants eventually prevailed either on the merits or some dismissals along the way, with the trial judge eventually awarding over $370,000 in attorney’s fees to the defendants based on Civil Code sections 1717 (contractual fee basis) and 5975 (HOA CC&R/Declaration enforcement actions).

     The appellate court reversed in major portions, favorably to the non-prevailing plaintiffs.

     Section 1717 did not apply because the claims were torts, not contract-based claims allowing for recovery. With respect to section 5975, the result was driven by the narrowness of the HOA Declaration provision stating that “[t]he Association or any Owner, shall have the right to enforce by any proceeding at law or in equity, all restrictions, conditions, covenants, reservations, liens and charges now or hereafter imposed by the provisions of this Declaration, and in such action shall be entitled to recover reasonable attorneys’ fees as are ordered by Court.” The reviewing court found that only the trespass claim fell within the ambit of this provision so as to be recoverable under section 5975, although a dismissal limited the time during which fees could be sought on remand.

Fee Clause Interpretation: Tenant’s Personal Injury Win Did Not Qualify Her For Attorney’s Fees Recovery Under Rental Agreement Or Community Guidelines Addenda

 

Result Might Have Been Different If Clause Said “Arising Out Of Agreement Or Tenancy.”

     Ramos v. Bay Breeze #60 , Case No. D069175 (4^th Dist., Div. 1 Jan. 17, 2017) (unpublished) is a good reminder about how the specific wording of a contractual fees clause may be dispositive on whether fee entitlement exists in the first place.

     In this one, a fees clause applied to actions “arising out of this agreement,” and there were Community Guidelines acknowledging landlord could be liable for common law negligence but found amidst indemnification language in favor of landlord vis-à-vis tenant. The tenant won an $8,500 parking lot slip and fall verdict, later moving to recover attorney’s fees and costs. The lower court said “no,” and the appellate court agreed.

     The reason was that the “arising out of this agreement” language did not encompass a personal injury action, unlike situations where fraud or unlawful detainer actions did arise out of the operative contract. With respect to the Community Guidelines indemnification language, it simply acknowledged landlord’s common law negligence and then specified that tenant would not have any indemnification obligation for such negligence—it did not create fee entitlement. However, the reviewing court did acknowledge that the result may have been different had the agreement included language indicating fee entitlement for “actions arising out of one’s tenancy.”

Fee Clause Interpretation, Prevailing Party, Section 1717, Allocation: Trial Court Erred In Awarding All Defense Fees Against Voluntarily Dismissing Plaintiff Under Santisas, Requiring Remand And Allocation

However, Prevailing Defense Was Entitled To Fees For Tort Claim Work Given Breadth Of Contractual Fees Clause.

    A trial judge in Khan v. Shim, Case No. H041608 (6^th Dist. Dec. 29, 2016) (published) granted the prevailing defense all fees for defensive work incurred in defending against a complaint containing both contractual and tort claims following plaintiff's voluntary dismissal of the complaint. The Sixth District reversed and remanded for an allocation of fees between compensable and non-compensable work.

    

    The main basis for the reversal was that the trial court's ruling ran afoul of Santisas [one of Our Leading Cases] as far as allowing for recovery of work on the contract claims. However, the fees clause was broad—covering "any litigation [which was] commenced concerning the Contract of Sale's terms, interpretation, or enforcement or the rights and duties of any party in relation thereto." The breadth of the clause encompassed the tort claims, such that the lower court on remand needed to do an apportionment rather than awarding for fee work on non-tort claims.

Fee Clause Interpretation: Fees Clause Only Allowing For Fee Recovery Only In Arbitrated Matter Did Not Provide Entitlement To A Party Involved In A Judicial Reference Proceeding

 

Lack Of Fee Entitlement Was Clear.

    In Davis v. The J. Hartman Co., Case No. G051648 (4th Dist., Div. 3 Nov. 28, 2016) (unpublished), a fees clause in a real estate independent contractor consulting agreement provided that a judge or arbitrator in an arbitration had to award reasonable attorney’s fees to the prevailing party.  However, the matter was not arbitrated, but was heard by a court-appointed referee.  After the referee adjudicated the matter, one party moved to recoup fees.  Both the trial and appellate courts said “no go,” rejecting the fee request.

    The fees clause was clear—it only applied to an arbitration, and that did not happen.  The appellate court also rejected the argument that a prayer for fees in a pleading is the equivalent of a judicial admission, because such a prayer does not establish whether there was substantive fee entitlement (which was missing in this one).

    Justice Thompson authored the 3-0 panel decision.

Fee Clause Interpretation/Probate: No Contest Clause In Amended Trust Instrument Did Not Confer Contractual Fee Entitlement Basis

 

$26,630 Fee Award Reversed On Appeal.

    A fertile ground for an appeal in the fee area is that the pertinent attorney’s fees clause simply does not allow for a fee recovery based on its wording where parol evidence is not introduced (and it rarely is in fee disputes).  Kiwata v. Kiwata, Case Nos. A147002/A147459 (1st Dist., Div. 1 Nov. 1, 2016) (unpublished) illustrates this point in the trust/probate area.

    There, the lower court ordered a successor trustee/brother to reimburse trustee/other brother to pay $22,630 in attorney’s fees for prevailing in a probate dispute based on the wording of a no contest clause in an amended trust instrument.  The appellate court reversed the fee award.  The no contest clause only allowed the trustee to charge all fees and other legal expenses in defending such an action “against the gift to [successor trustee/brother];” thus, the trustee could only discretionarily diminish any gift to the other side but the clause was not the equivalent of a contractual attorney’s fees provision, requiring reversal of the fee award.